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Regions Financial Corporation (RF)

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Regions Financial Corporation 10-Q 2012

Documents found in this filing:

10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

x	Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended March 31, 2012

¨	Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from to

Commission File Number: 000-50831

Regions Financial Corporation

(Exact name of registrant as specified in its charter)


Delaware		63-0589368
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

1900 Fifth Avenue North Birmingham, Alabama		35203
(Address of principal executive offices)		(Zip Code)

(205) 944-1300

(Registrant’s telephone number, including area code)

NOT APPLICABLE

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes ¨ No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). x Yes ¨ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer x Accelerated filer ¨ Non-accelerated filer ¨ (Do not check if a smaller reporting company) Smaller reporting company ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ¨ Yes x No

The number of shares outstanding of each of the issuer’s classes of common stock was 1,412,429,000 shares of common stock, par value $.01, outstanding as of April 26, 2012.

REGIONS FINANCIAL CORPORATION

FORM 10-Q

INDEX


			Page
Part I. Financial Information
	Item 1.	Financial Statements (Unaudited)
		Consolidated Balance Sheets—March 31, 2012 and December 31, 2011		5
		Consolidated Statements of Operations—Three months ended March 31, 2012 and 2011		6
		Consolidated Statements of Comprehensive Income (Loss)—Three months ended March 31, 2012 and 2011		7
		Consolidated Statements of Changes in Stockholders’ Equity—Three months ended March 31, 2012 and 2011		8
		Consolidated Statements of Cash Flows—Three months ended March 31, 2012 and 2011		9
		Notes to Consolidated Financial Statements		10
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		59
	Item 3.	Quantitative and Qualitative Disclosures about Market Risk		100
	Item 4.	Controls and Procedures		100

Part II. Other Information
	Item 1.	Legal Proceedings		101
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		101
	Item 6.	Exhibits		102

Signatures				103

Forward-Looking Statements

This Quarterly Report on Form 10-Q, other periodic reports filed by Regions Financial Corporation (“Regions”) under the Securities Exchange Act of 1934, as amended, and any other written or oral statements made by or on behalf of Regions may include forward-looking statements. The Private Securities Litigation Reform Act of 1995 (the “Act”) provides a “safe harbor” for forward-looking statements which are identified as such and are accompanied by the identification of important factors that could cause actual results to differ materially from the forward-looking statements. For these statements, we, together with our subsidiaries, unless the context implies otherwise, claim the protection afforded by the safe harbor in the Act. Forward-looking statements are not based on historical information, but rather are related to future operations, strategies, financial results or other developments. Forward-looking statements are based on management’s expectations as well as certain assumptions and estimates made by, and information available to, management at the time the statements are made. Those statements are based on general assumptions and are subject to various risks, uncertainties and other factors that may cause actual results to differ materially from the views, beliefs and projections expressed in such statements. These risks, uncertainties and other factors include, but are not limited to, those described below:

•

The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) became law on July 21, 2010, and a number of legislative, regulatory and tax proposals remain pending. Additionally, the U.S. Treasury and federal banking regulators continue to implement, but are also beginning to wind down, a number of programs to address capital and liquidity in the banking system. Future and proposed rules, including those that are part of the Basel III process, could require banking institutions to increase levels of capital. All of the foregoing may have significant effects on Regions and the financial services industry, the exact nature and extent of which cannot be determined at this time.

•

Regions’ ability to mitigate the impact of the Dodd-Frank Act on debit interchange fees through revenue enhancements and other revenue measures, which will depend on various factors, including the acceptance by customers of modified fee structures for Regions’ products and services.

•

Possible additional loan losses, impairment of goodwill and other intangibles, and adjustment of valuation allowances on deferred tax assets and the impact on earnings and capital.

•

Possible changes in interest rates may increase funding costs and reduce earning asset yields, thus reducing margins. Increases in benchmark interest rates would also increase debt service requirements for customers whose terms include a variable interest rate, which may negatively impact the ability of borrowers to pay as contractually obligated.

•

Possible changes in general economic and business conditions in the United States in general and in the communities Regions serves in particular, including any prolonging or worsening of the current unfavorable economic conditions, including unemployment levels.

•

Possible changes in the creditworthiness of customers and the possible impairment of the collectability of loans.

•

Possible changes in trade, monetary and fiscal policies, laws and regulations, and other activities of governments, agencies, and similar organizations, may have an adverse effect on business.

•

Possible stresses in the financial and real estate markets, including possible continued deterioration in property values.

•

Regions’ ability to manage fluctuations in the value of assets and liabilities and off-balance sheet exposure so as to maintain sufficient capital and liquidity to support Regions’ business.

•

Regions’ ability to expand into new markets and to maintain profit margins in the face of competitive pressures.

•

Regions’ ability to develop competitive new products and services in a timely manner and the acceptance of such products and services by Regions’ customers and potential customers.

•

Regions’ ability to keep pace with technological changes.

•

Regions’ ability to effectively manage credit risk, interest rate risk, market risk, operational risk, legal risk, liquidity risk, and regulatory and compliance risk.

•

Regions’ ability to ensure adequate capitalization which is impacted by inherent uncertainties in forecasting credit losses.

•

The cost and other effects of material contingencies, including litigation contingencies, and any adverse judicial, administrative, or arbitral rulings or proceedings.

•

The effects of increased competition from both banks and non-banks.

•

The effects of geopolitical instability and risks such as terrorist attacks.

•

Possible changes in consumer and business spending and saving habits could affect Regions’ ability to increase assets and to attract deposits.

•

The effects of weather and natural disasters such as floods, droughts, wind, tornadoes and hurricanes, and the effects of man-made disasters.

•

Possible downgrades in ratings issued by rating agencies.

•

Possible changes in the speed of loan prepayments by Regions’ customers and loan origination or sales volumes.

•

Possible acceleration of prepayments on mortgage-backed securities due to low interest rates, and the related acceleration of premium amortization on those securities.

•

The effects of problems encountered by larger or similar financial institutions that adversely affect Regions or the banking industry generally.

•

Regions’ ability to receive dividends from its subsidiaries.

•

The effects of the failure of any component of Regions’ business infrastructure which is provided by a third party.

•

Changes in accounting policies or procedures as may be required by the Financial Accounting Standards Board or other regulatory agencies.

•

With regard to the sale of Morgan Keegan, the possibility of business disruption following the transaction, reputational risks and the reaction of customers and counterparties to the transaction; and occurrences which could cause post-closing adjustments to the purchase price.

•

The effects of any damage to Regions’ reputation resulting from developments related to any of the items identified above.

The words “believe,” “expect,” “anticipate,” “project,” and similar expressions often signify forward-looking statements. You should not place undue reliance on any forward-looking statements, which speak only as of the date made. We assume no obligation to update or revise any forward-looking statements that are made from time to time.

See also the “Forward-Looking Statements” and “Risk Factors” sections of Regions’ Annual Report on Form 10-K for the year ended December 31, 2011, as filed with the Securities and Exchange Commission.

PART I

FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

REGIONS FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS


	March 31 2012			December 31 2011
	(In millions, except share data)
Assets
Cash and due from banks	$	2,036		$	2,132
Interest-bearing deposits in other banks		5,270			4,913
Federal funds sold and securities purchased under agreements to resell		167			200
Trading account assets		1,127			1,266
Securities available for sale		27,177			24,471
Securities held to maturity		15			16
Loans held for sale (includes $752 and $844 measured at fair value, respectively)		1,054			1,193
Loans, net of unearned income		76,720			77,594
Allowance for loan losses		(2,530	)		(2,745	)

Net loans		74,190			74,849
Other interest-earning assets		1,054			1,085
Premises and equipment, net		2,350			2,375
Interest receivable		397			361
Goodwill		4,816			4,816
Mortgage servicing rights		199			182
Other identifiable intangible assets		420			449
Other assets		8,010			8,742

Total assets	$	128,282		$	127,050

Liabilities and Stockholders’ Equity
Deposits:
Non-interest-bearing	$	29,707		$	28,266
Interest-bearing		67,431			67,361

Total deposits		97,138			95,627
Borrowed funds:
Short-term borrowings:
Federal funds purchased and securities sold under agreements to repurchase		2,287			2,333
Other short-term borrowings		621			734

Total short-term borrowings		2,908			3,067
Long-term borrowings		7,196			8,110

Total borrowed funds		10,104			11,177
Other liabilities		3,506			3,747

Total liabilities		110,748			110,551
Stockholders’ equity:
Preferred stock, authorized 10 million shares Series A, cumulative perpetual participating, par value $1.00 (liquidation preference $1,000.00) per share, net of discount; Issued—3,500,000 shares		3,429			3,419
Common stock, par value $.01 per share:
Authorized 3 billion shares
Issued including treasury stock—1,454,644,205 and 1,301,230,838 shares, respectively		15			13
Additional paid-in capital		19,939			19,060
Retained earnings (deficit)		(4,395	)		(4,527	)
Treasury stock, at cost—42,215,194 and 42,414,444 shares, respectively		(1,394	)		(1,397	)
Accumulated other comprehensive income (loss), net		(60	)		(69	)

Total stockholders’ equity		17,534			16,499

Total liabilities and stockholders’ equity	$	128,282		$	127,050

See notes to consolidated financial statements.

REGIONS FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS


	Three Months Ended March 31
	2012			2011
	(In millions, except per share data)
Interest income on:
Loans, including fees	$	812		$	867
Securities:
Taxable		174			207
Tax-exempt		—			—

Total securities		174			207
Loans held for sale		7			13
Trading account assets		1			—
Other interest-earning assets		3			3

Total interest income		997			1,090
Interest expense on:
Deposits		88			139
Short-term borrowings		—			1
Long-term borrowings		82			95

Total interest expense		170			235

Net interest income		827			855
Provision for loan losses		117			482

Net interest income after provision for loan losses		710			373
Non-interest income:
Service charges on deposit accounts		254			287
Capital markets and investment income		28			31
Mortgage income		77			45
Trust department income		49			50
Securities gains, net		12			82
Other		104			85

Total non-interest income		524			580
Non-interest expense:
Salaries and employee benefits		442			428
Net occupancy expense		94			100
Furniture and equipment expense		64			70
Other		313			334

Total non-interest expense		913			932

Income from continuing operations before income taxes		321			21
Income tax expense (benefit)		82			(29	)

Income from continuing operations	$	239		$	50
Discontinued operations:
Income (loss) from discontinued operations before income taxes		(65	)		36
Income tax expense (benefit)		(25	)		17

Income (loss) from discontinued operations, net of tax		(40	)		19
Net income	$	199		$	69

Net income (loss) from continuing operations available to common shareholders	$	185		$	(2	)

Net income available to common shareholders	$	145		$	17

Weighted-average number of shares outstanding:
Basic		1,282			1,257
Diluted		1,283			1,259
Earnings (loss) per common share from continuing operations:
Basic	$	0.14		$	(0.00	)
Diluted		0.14			(0.00	)
Earnings per common share:
Basic	$	0.11		$	0.01
Diluted		0.11			0.01
Cash dividends declared per common share		0.01			0.01

See notes to consolidated financial statements.

REGIONS FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)


	Three Months Ended March 31
	2012			2011
	(In millions)
Net income	$	199		$	69
Other comprehensive income (loss), net of tax:*
Unrealized gains (losses) on securities available for sale:
Unrealized holding gains (losses) arising during the period (net of zero and $33 tax effect for the three months ended March 31, 2012 and 2011, respectively)		2			(48	)
Less: reclassification adjustments for securities gains realized in net income (net of $4 and $29 tax effect for the three months ended March 31, 2012 and 2011, respectively)		8			53

Net change in unrealized gains (losses) on securities available for sale		(6	)		(101	)
Unrealized gains (losses) on derivative instruments designated as cash flow hedges:
Unrealized holding gains (losses) on derivatives arising during the period (net of $6 and zero tax effect for the three months ended March 31, 2012 and 2011, respectively)		10			1
Less: reclassification adjustments for gains realized in net income (net of $6 and $19 tax effect for the three months ended March 31, 2012 and 2011, respectively)		10			31

Net change in unrealized gains (losses) on derivative instruments		—			(30	)
Defined benefit pension plans and other post employment benefits:
Amortization of actuarial loss and prior service cost realized in net income, and other (net of $8 and $4 tax effect for the three months ended March 31, 2012 and 2011, respectively)		15			4

Net change from defined benefit pension plans		15			4

Other comprehensive income (loss), net of tax*	$	9		$	(127	)

Comprehensive income (loss)	$	208		$	(58	)

See notes to consolidated financial statements.

*	All other comprehensive amounts are shown net of tax.

REGIONS FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY


	Preferred Stock				Common Stock				Additional Paid-In Capital			Retained Earnings (Deficit)			Treasury Stock, At Cost			Accumulated Other Comprehensive Income (Loss)			Total
	Shares		Amount		Shares		Amount		Additional Paid-In Capital			Retained Earnings (Deficit)			Treasury Stock, At Cost			Accumulated Other Comprehensive Income (Loss)			Total
	(In millions, except share and per share data)
BALANCE AT JANUARY 1, 2011		4	$	3,380		1,256	$	13	$	19,050		$	(4,047	)	$	(1,402	)	$	(260	)	$	16,734
Net income		—		—		—		—		—			69			—			—			69
Net change in unrealized gains and losses on securities available for sale, net of tax and reclassification adjustment		—		—		—		—		—			—			—			(101	)		(101	)
Net change in unrealized gains and losses on derivative instruments, net of tax and reclassification adjustment		—		—		—		—		—			—			—			(30	)		(30	)
Net change from defined benefit pension plans, net of tax		—		—		—		—		—			—			—			4			4
Cash dividends declared—$0.01 per share		—		—		—		—		—			(13	)		—			—			(13	)
Preferred dividends		—		—		—		—					(43	)		—			—			(43	)
Preferred stock transactions:
Discount accretion		—		9		—		—		—			(9	)		—			—			—
Common stock transactions:
Impact of stock transactions under compensation plans, net		—		—		—		—		(3	)		—			2			—			(1	)

BALANCE AT MARCH 31, 2011		4	$	3,389		1,256	$	13	$	19,047		$	(4,043	)	$	(1,400	)	$	(387	)	$	16,619

BALANCE AT JANUARY 1, 2012		4	$	3,419		1,259	$	13	$	19,060		$	(4,527	)	$	(1,397	)	$	(69	)	$	16,499
Net income		—		—		—		—		—			199			—			—			199
Net change in unrealized gains and losses on securities available for sale, net of tax and reclassification adjustment		—		—		—		—		—			—			—			(6	)		(6	)
Net change from defined benefit pension plans, net of tax		—		—		—		—		—			—			—			15			15
Cash dividends declared—$0.01 per share		—		—		—		—		—			(13	)		—			—			(13	)
Preferred dividends		—		—		—		—		—			(44	)		—			—			(44	)
Preferred stock transactions:
Discount accretion		—		10		—		—		—			(10	)		—			—			—
Common stock transactions:
Net proceeds from issuance of 153 million shares of common stock		—		—		153		2		873			—			—			—			875
Impact of stock transactions under compensation plans, net		—		—		—		—		6			—			3			—			9

BALANCE AT MARCH 31, 2012		4	$	3,429		1,412	$	15	$	19,939		$	(4,395	)	$	(1,394	)	$	(60	)	$	17,534

See notes to consolidated financial statements.

REGIONS FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS


	Three Months Ended March 31
	2012			2011
	(In millions)
Operating activities:
Net income	$	199		$	69
Adjustments to reconcile net cash provided by operating activities:
Provision for loan losses		117			482
Depreciation and amortization of premises and equipment		62			68
Provision for losses on other real estate, net		15			30
Net amortization of securities		68			50
Net amortization of loans and other assets		40			47
Net amortization of borrowings		1			—
Net securities gains		(12	)		(82	)
Deferred income tax expense (benefit)		55			(14	)
Originations and purchases of loans held for sale		(1,029	)		(1,450	)
Proceeds from sales of loans held for sale		1,313			1,591
Gain on sale of loans, net		(38	)		(20	)
Valuation charges on loans held for sale		1			2
Decrease (increase) in trading account assets		139			(168	)
Decrease in other interest-earning assets		31			5
Increase in interest receivable		(36	)		(20	)
Decrease in other assets		48			1,272
Decrease in other liabilities		(218	)		(483	)
Other		(1	)		(47	)

Net cash from operating activities		755			1,332
Investing activities:
Proceeds from sales of securities available for sale		1,398			2,419
Proceeds from maturities of securities available for sale		1,594			1,363
Proceeds from maturities of securities held to maturity		1			2
Purchases of securities available for sale		(5,075	)		(5,323	)
Proceeds from sales of loans		159			602
Purchases of loans		(174	)		(162	)
Net decrease in loans		337			202
Net purchases of premises and equipment		(37	)		(28	)

Net cash from investing activities		(1,797	)		(925	)
Financing activities:
Net increase in deposits		1,511			1,755
Net decrease in short-term borrowings		(159	)		(755	)
Proceeds from long-term borrowings		—			601
Payments on long-term borrowings		(900	)		(1,551	)
Cash dividends on common stock		(13	)		(13	)
Cash dividends on preferred stock		(44	)		(43	)
Net proceeds from issuance of common stock		875			—

Net cash from financing activities		1,270			(6	)

Increase in cash and cash equivalents		228			401
Cash and cash equivalents at beginning of year		7,245			6,919

Cash and cash equivalents at end of period	$	7,473		$	7,320

See notes to consolidated financial statements.

REGIONS FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Three Months Ended March 31, 2012 and 2011

NOTE 1—Basis of Presentation

Regions Financial Corporation (“Regions” or the “Company”) provides a full range of banking and bank-related services to individual and corporate customers through its subsidiaries and branch offices located primarily in Alabama, Arkansas, Florida, Georgia, Illinois, Indiana, Iowa, Kentucky, Louisiana, Mississippi, Missouri, North Carolina, South Carolina, Tennessee, Texas and Virginia. The Company is subject to competition from other financial institutions, is subject to the regulations of certain government agencies and undergoes periodic examinations by those regulatory authorities.

The accounting and reporting policies of Regions and the methods of applying those policies that materially affect the consolidated financial statements conform with accounting principles generally accepted in the United States (“GAAP”) and with general financial services industry practices. The accompanying interim financial statements have been prepared in accordance with the instructions for Form 10-Q and, therefore, do not include all information and notes to the consolidated financial statements necessary for a complete presentation of financial position, results of operations, comprehensive income and cash flows in conformity with GAAP. In the opinion of management, all adjustments, consisting of normal and recurring items, necessary for the fair presentation of the consolidated financial statements have been included. These interim financial statements should be read in conjunction with the consolidated financial statements and notes thereto in Regions’ Form 10-K for the year ended December 31, 2011. Regions has evaluated all subsequent events for potential recognition and disclosure through the filing date of this Form 10-Q. See Note 16.

Beginning with first quarter 2012 financial reporting, as required by new accounting literature, Regions began presenting a separate consolidated statement of comprehensive income. Comprehensive income (loss) is the total of net income and all other non-owner changes in equity. Items are recognized as components of comprehensive income (loss) and are displayed net of tax in the consolidated statements of comprehensive income (loss). In the calculation of comprehensive income (loss), certain reclassification adjustments are made to avoid double-counting items that are displayed as part of net income (loss) for a period that also had been displayed as part of other comprehensive income (loss) in that period or earlier periods. The prior period is also shown for comparability.

On January 11, 2012, Regions entered into an agreement to sell Morgan Keegan & Company, Inc. (“Morgan Keegan”) and related affiliates. The transaction closed on April 2, 2012. See Note 2, Note 14 and Note 16 for further details. Results of operations for the entities being sold are presented separately as discontinued operations for all periods presented on the consolidated statements of operations because the pending sale met all of the criteria for reporting as discontinued operations at March 31, 2012. Other expenses related to the transaction are also included in discontinued operations. This presentation is consistent with the consolidated financial statements included in the 2011 Form 10-K.

Certain amounts in prior period financial statements have been reclassified to conform to the current period presentation. These reclassifications are immaterial and have no effect on net income, comprehensive income, total assets or stockholders’ equity.

NOTE 2—Discontinued Operations

On January 11, 2012, Regions entered into a stock purchase agreement to sell Morgan Keegan and related affiliates to Raymond James Financial, Inc. (“Raymond James”). The transaction closed on April 2, 2012. Regions Investment Management, Inc. (formerly known as Morgan Asset Management, Inc.) and Regions Trust

were not included in the sale. In connection with the closing, the Company and Raymond James agreed that in lieu of the $250 million pre-closing dividend from Morgan Keegan to the Company as contemplated in the original agreement, the parties would increase the purchase price by the same amount. The total purchase price received by the Company was approximately $1.2 billion.

The transaction purchase price is subject to post-closing adjustment based on the closing tangible book value of the entities being sold and retention of Morgan Keegan associates as of 90 days post-closing. Regions believes any adjustments to the sales price will not have a material impact to the consolidated financial statements. Regions has agreed to indemnify Raymond James for all litigation matters related to pre-closing activities. See Note 14 and Note 16 for related disclosure.

The following table represents the condensed results of operations for discontinued operations for the three months ended March 31:


	Three Months Ended March 31
	2012			2011
	(In millions, except per share data)
Interest income	$	8		$	10
Interest expense		1			2

Net interest income		7			8
Non-interest income:
Brokerage, investment banking and capital markets		233			236
Other		7			27

Total non-interest income		240			263
Non-interest expense:
Salaries and employee benefits		171			166
Net occupancy expense		9			9
Furniture and equipment expense		8			7
Professional and legal expenses		96			25
Other		28			28

Total non-interest expense		312			235

Income (loss) from discontinued operations before income taxes		(65	)		36
Income tax expense (benefit)		(25	)		17

Income (loss) from discontinued operations, net of tax	$	(40	)	$	19

Earnings (loss) per common share from discontinued operations:
Basic	$	(0.03	)	$	0.01
Diluted	$	(0.03	)	$	0.01

A summary of the major categories of assets and liabilities (including related deferred taxes) related to the entities being sold as of March 31, 2012 and December 31, 2011 is as follows:


	March 31, 2012		December 31, 2011
	(In millions)
Assets:
Cash and due from banks	$	165	$	232
Securities purchased under agreements to resell		167		200
Trading account assets		963		1,088
Other interest-earning assets		373		340
Other assets		1,016		944

Total assets	$	2,684	$	2,804

Liabilities:
Securities sold under agreements to repurchase	$	369	$	253
Other short-term borrowings		560		678
Other liabilities		836		914

Total liabilities	$	1,765	$	1,845

NOTE 3—Securities

The amortized cost, gross unrealized gains and losses, and estimated fair value of securities available for sale and securities held to maturity are as follows:


	March 31, 2012
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
	(In millions)
Securities available for sale:
U.S. Treasury securities	$	44	$	3	$	—		$	47
Federal agency securities		336		3		—			339
Obligations of states and political subdivisions		21		10		—			31
Mortgage-backed securities:
Residential agency		22,992		489		(25	)		23,456
Residential non-agency		14		1		—			15
Commercial agency		427		9		(1	)		435
Commercial non-agency		479		13		(1	)		491
Corporate and other debt securities		1,538		17		(12	)		1,543
Equity securities		818		3		(1	)		820

	$	26,669	$	548	$	(40	)	$	27,177

Securities held to maturity:
U.S. Treasury securities	$	4	$	—	$	—		$	4
Federal agency securities		3		—		—			3
Mortgage-backed securities:
Residential agency		8		1		—			9

	$	15	$	1	$	—		$	16


	December 31, 2011
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
	(In millions)
Securities available for sale:
U.S. Treasury securities	$	95	$	3	$	—		$	98
Federal agency securities		147		—		—			147
Obligations of states and political subdivisions		24		12		—			36
Mortgage-backed securities:
Residential agency		21,688		494		(7	)		22,175
Residential non-agency		15		1		—			16
Commercial agency		318		8		—			326
Commercial non-agency		314		7		—			321
Corporate and other debt securities		539		5		(7	)		537
Equity securities		817		2		(4	)		815

	$	23,957	$	532	$	(18	)	$	24,471

Securities held to maturity:
U.S. Treasury securities	$	4	$	—	$	—		$	4
Federal agency securities		3		—		—			3
Mortgage-backed securities:
Residential agency		9		1		—			10

	$	16	$	1	$	—		$	17

Entities included with the sale of Morgan Keegan and related affiliates had approximately $7 million and $2 million in securities available for sale at March 31, 2012 and December 31, 2011, respectively, which are included in the tables above. Morgan Keegan and related affiliates had no securities held to maturity at March 31, 2012 or December 31, 2011.

Equity securities in the tables above included the following amortized cost related to Federal Reserve Bank stock and Federal Home Loan Bank (“FHLB”) stock. Shares in the Federal Reserve Bank and FHLB are accounted for at amortized cost, which approximates fair value.


	March 31 2012		December 31 2011
	(In millions)
Federal Reserve Bank	$	481	$	481
Federal Home Loan Bank		219		219

Securities with carrying values of $14.4 billion and $14.3 billion at March 31, 2012 and December 31, 2011, respectively, were pledged to secure public funds, trust deposits and certain borrowing arrangements.

The amortized cost and estimated fair value of securities available for sale and securities held to maturity at March 31, 2012, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.


	Amortized Cost		Estimated Fair Value
	(In millions)
Securities available for sale:
Due in one year or less	$	15	$	15
Due after one year through five years		762		769
Due after five years through ten years		938		946
Due after ten years		224		230
Mortgage-backed securities:
Residential agency		22,992		23,456
Residential non-agency		14		15
Commercial agency		427		435
Commercial non-agency		479		491
Equity securities		818		820

	$	26,669	$	27,177

Securities held to maturity:
Due in one year or less	$	4	$	4
Due after one year through five years		3		3
Due after five years through ten years		—		—
Due after ten years		—		—
Mortgage-backed securities:
Residential agency		8		9

	$	15	$	16

The following tables present gross unrealized losses and estimated fair value of securities available for sale at March 31, 2012 and December 31, 2011. These securities are segregated between investments that have been in a continuous unrealized loss position for less than twelve months and twelve months or more.


	March 31, 2012
	Less Than Twelve Months					Twelve Months or More					Total
	Estimated Fair Value		Gross Unrealized Losses			Estimated Fair Value		Gross Unrealized Losses			Estimated Fair Value		Gross Unrealized Losses
	(In millions)
Mortgage-backed securities:
Residential agency	$	3,797	$	(25	)	$	—	$	—		$	3,797	$	(25	)
Commercial agency		67		(1	)		—		—			67		(1	)
Commercial non-agency		134		(1	)		—		—			134		(1	)
All other securities		733		(11	)		5		(2	)		738		(13	)

	$	4,731	$	(38	)	$	5	$	(2	)	$	4,736	$	(40	)


	December 31, 2011
	Less Than Twelve Months					Twelve Months or More					Total
	Estimated Fair Value		Gross Unrealized Losses			Estimated Fair Value		Gross Unrealized Losses			Estimated Fair Value		Gross Unrealized Losses
	(In millions)
Mortgage-backed securities:
Residential agency	$	1,778	$	(7	)	$	—	$	—		$	1,778	$	(7	)
All other securities		291		(9	)		5		(2	)		296		(11	)

	$	2,069	$	(16	)	$	5	$	(2	)	$	2,074	$	(18	)

There was no gross unrealized loss on debt securities held to maturity at either March 31, 2012 or December 31, 2011.

For the securities included in the tables above, management does not believe any individual unrealized loss, which was comprised of 537 securities and 524 securities at March 31, 2012 and December 31, 2011, respectively, represented an other-than-temporary impairment as of those dates. The Company does not intend to sell, and it is not likely that the Company will be required to sell, the securities before the recovery of their amortized cost basis, which may be at maturity.

Proceeds from sale, gross realized gains and gross realized losses from continuing operations on sales of securities available for sale are shown in the table below. The cost of securities sold is based on the specific identification method.


	For the Three Months Ended March 31
	2012		2011
	(In millions)
Proceeds	$	1,398	$	2,419
Gross realized gains		12		82
Gross realized losses		—		—

Net securities gains (losses)	$	12	$	82

The following table details net gains (losses) for trading account securities:


	Three Months Ended March 31
	2012		2011
	(In millions)
Total net gains (losses)	$	30	$	21
Unrealized portion		25		14

Included in the table above are amounts related to activities of Morgan Keegan of approximately $25 million and $15 million of total net gains for the three months ended March 31, 2012 and 2011, respectively. These amounts are included with results from discontinued operations.

NOTE 4—Loans and the Allowance for Credit Losses

LOANS

The following table presents the distribution by loan segment and class of Regions’ loan portfolio, net of unearned income:


	March 31 2012		December 31 2011
	(In millions, net of unearned income)
Commercial and industrial	$	25,098	$	24,522
Commercial real estate mortgage—owner occupied		10,931		11,166
Commercial real estate construction—owner occupied		281		337

Total commercial		36,310		36,025
Commercial investor real estate mortgage		9,156		9,702
Commercial investor real estate construction		955		1,025

Total investor real estate		10,111		10,727
Residential first mortgage		13,611		13,784
Home equity		12,642		13,021
Indirect		1,938		1,848
Consumer credit card		939		987
Other consumer		1,169		1,202

Total consumer		30,299		30,842

	$	76,720	$	77,594

During the three months ended March 31, 2012 and 2011, Regions purchased approximately $174 million and $162 million, respectively, in indirect loans from a third party.

ALLOWANCE FOR CREDIT LOSSES

The allowance for credit losses represents management’s estimate of credit losses inherent in the loan and credit commitment portfolios as of period-end. The allowance for credit losses consists of two components: the allowance for loan and lease losses and the reserve for unfunded credit commitments. Management’s assessment of the appropriateness of the allowance for credit losses is based on a combination of both of these components. Regions determines its allowance for credit losses in accordance with applicable accounting literature as well as regulatory guidance related to receivables and contingencies. Binding unfunded credit commitments include items such as letters of credit, financial guarantees and binding unfunded loan commitments.

CALCULATION OF ALLOWANCE FOR CREDIT LOSSES

As part of the Company’s ongoing efforts to enhance the allowance calculation, and in response to regulatory guidance issued during the first quarter of 2012, the home equity portfolio was segmented at a more granular level. Loss rates for home equity products are now developed based on lien position, status as a troubled debt restructuring (“TDR”), geography, past due status, and refreshed FICO scores for non-past due loans. The enhancement had the impact of reducing the component of the allowance for loan losses related to home equity loans by an estimate of approximately $30 million.

Except for the enhancement to home equity segmentation described above, during the first quarter of 2012 there were no changes in methodology for the calculation of the allowance for credit losses or policies for identification of non-accrual or for charge-offs. A detailed description of the Company’s methodology is included in the consolidated financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2011.

ROLLFORWARD OF ALLOWANCE FOR CREDIT LOSSES

The following tables present analyses of the allowance for credit losses by portfolio segment for the three months ended March 31, 2012 and 2011. The total allowance for credit losses as of March 31, 2012 and 2011 is then disaggregated to detail the amounts derived through individual evaluation and the amounts calculated through collective evaluation. The allowance for credit losses related to individually evaluated loans includes reserves for non-accrual loans and leases equal to or greater than $2.5 million. The allowance for credit losses related to collectively evaluated loans includes the remainder of the portfolio.


	Three Months Ended March 31, 2012
	Commercial			Investor Real Estate			Consumer			Total
	(In millions)
Allowance for loan losses, January 1, 2012	$	1,030		$	991		$	724		$	2,745
Provision for loan losses		61			(10	)		66			117
Loan losses:
Charge-offs		(125	)		(95	)		(156	)		(376	)
Recoveries		16			12			16			44

Net loan losses		(109	)		(83	)		(140	)		(332	)

Allowance for loan losses, March 31, 2012		982			898			650			2,530

Reserve for unfunded credit commitments, January 1, 2012	$	30		$	26		$	22		$	78
Provision (credit) for unfunded credit commitments		14			—			(1	)		13

Reserve for unfunded credit commitments, March 31, 2012		44			26			21			91

Allowance for credit losses, March 31, 2012	$	1,026		$	924		$	671		$	2,621

Portion of ending allowance for credit losses:
Individually evaluated for impairment	$	105		$	146		$	2		$	253
Collectively evaluated for impairment		921			778			669			2,368

Total allowance for credit losses	$	1,026		$	924		$	671		$	2,621

Portion of loan portfolio ending balance:
Individually evaluated for impairment	$	475		$	532		$	7		$	1,014
Collectively evaluated for impairment		35,835			9,579			30,292			75,706

Total loans evaluated for impairment	$	36,310		$	10,111		$	30,299		$	76,720


	Three Months Ended March 31, 2011
	Commercial			Investor Real Estate			Consumer			Total
	(In millions)
Allowance for loan losses, January 1, 2011	$	1,055		$	1,370		$	760		$	3,185
Provision for loan losses		225			89			168			482
Loan losses:
Charge-offs		(151	)		(181	)		(180	)		(512	)
Recoveries		9			7			15			31

Net loan losses		(142	)		(174	)		(165	)		(481	)
Allowance for loan losses, March 31, 2011		1,138			1,285			763			3,186

Reserve for unfunded credit commitments, January 1, 2011	$	32		$	16		$	23		$	71
Provision for unfunded credit commitments		5			1			1			7

Reserve for unfunded credit commitments, March 31, 2011		37			17			24			78

Allowance for credit losses, March 31, 2011	$	1,175		$	1,302		$	787		$	3,264

Portion of ending allowance for credit losses:
Individually evaluated for impairment	$	113		$	340		$	3		$	456
Collectively evaluated for impairment		1,062			962			784			2,808

Total allowance for credit losses	$	1,175		$	1,302		$	787		$	3,264

Portion of loan portfolio ending balance:
Individually evaluated for impairment	$	469		$	1,248		$	19		$	1,736
Collectively evaluated for impairment		34,999			13,579			31,057			79,635

Total loans evaluated for impairment	$	35,468		$	14,827		$	31,076		$	81,371

PORTFOLIO SEGMENT RISK FACTORS

The following describe the risk characteristics relevant to each of the portfolio segments.

Commercial—The commercial loan portfolio segment includes commercial and industrial loans to commercial customers for use in normal business operations to finance working capital needs, equipment purchases or other expansion projects. Commercial also includes owner-occupied commercial real estate loans to operating businesses, which are loans for long-term financing of land and buildings, and are repaid by cash flow generated by business operations. Owner-occupied construction loans are made to commercial businesses for the development of land or construction of a building where the repayment is derived from revenues generated from the business of the borrower. Collection risk in this portfolio is driven by the creditworthiness of underlying borrowers, particularly cash flow from customers’ business operations.

Investor Real Estate—Loans for real estate development are repaid through cash flow related to the operation, sale or refinance of the property. This portfolio segment includes extensions of credit to real estate developers or investors where repayment is dependent on the sale of real estate or income generated from the real estate collateral. A portion of Regions’ investor real estate portfolio segment is comprised of loans secured by residential product types (land, single-family and condominium loans) within Regions’ markets. Additionally, these loans are made to finance income-producing properties such as apartment buildings, office and industrial buildings, and retail shopping centers. Loans in this portfolio segment are particularly sensitive to valuation of real estate.

Consumer—The consumer loan portfolio segment includes residential first mortgage, home equity, indirect, consumer credit card, and other consumer loans. Residential first mortgage loans represent loans to consumers to finance a residence. These loans are typically financed over a 15 to 30 year term and, in most cases, are extended to borrowers to finance their primary residence. Home equity lending includes both home equity loans and lines

of credit. This type of lending, which is secured by a first or second mortgage on the borrower’s residence, allows customers to borrow against the equity in their home. Real estate market values as of the time the loan or line is secured directly affect the amount of credit extended and, in addition, changes in these values impact the depth of potential losses. Indirect lending, which is lending initiated through third-party business partners, is largely comprised of loans made through automotive dealerships. Consumer credit card includes approximately 500,000 Regions branded consumer credit card accounts purchased late in the second quarter of 2011 from FIA Card Services. Other consumer loans include direct consumer installment loans, overdrafts and other revolving loans. Loans in this portfolio segment are sensitive to unemployment and other key consumer economic measures.

CREDIT QUALITY INDICATORS

The following tables present credit quality indicators for the loan portfolio segments and classes, excluding loans held for sale, as of March 31, 2012 and December 31, 2011. Commercial and investor real estate loan classes are detailed by categories related to underlying credit quality and probability of default. These categories are utilized to develop the associated allowance for credit losses.

•

Pass—includes obligations where the probability of default is considered low;

•

Special Mention—includes obligations that have potential weakness which may, if not reversed or corrected, weaken the credit or inadequately protect the Company’s position at some future date. Obligations in this category may also be subject to economic or market conditions which may, in the future, have an adverse effect on debt service ability;

•

Substandard Accrual—includes obligations that exhibit a well-defined weakness which presently jeopardizes debt repayment, even though they are currently performing. These obligations are characterized by the distinct possibility that the Company may incur a loss in the future if these weaknesses are not corrected;

•

Non-accrual—includes obligations where management has determined that full payment of principal and interest is in doubt.

Substandard accrual and non-accrual loans are often collectively referred to as “classified.” Special mention, substandard accrual, and non-accrual loans are often collectively referred to as “criticized and classified.”

Classes in the consumer portfolio segment are disaggregated by accrual status. The associated allowance for credit losses is generally based on historical losses of the various classes adjusted for current economic conditions. For home equity products, loss rates are based on lien position, TDR status, geography, past due status, and refreshed FICO scores for current loans.


	March 31, 2012
	Pass		Special Mention		Substandard Accrual		Non-accrual		Total
	(In millions)
Commercial and industrial	$	23,417	$	636	$	606	$	439	$	25,098
Commercial real estate mortgage—owner occupied		9,613		215		558		545		10,931
Commercial real estate construction—owner occupied		229		14		15		23		281

Total commercial	$	33,259	$	865	$	1,179	$	1,007	$	36,310


Commercial investor real estate mortgage		6,627		693		1,196		640		9,156
Commercial investor real estate construction		556		94		178		127		955

Total investor real estate	$	7,183	$	787	$	1,374	$	767	$	10,111


					Accrual		Non-accrual		Total
					(In millions)
Residential first mortgage					$	13,370	$	241	$	13,611
Home equity						12,506		136		12,642
Indirect						1,938		—		1,938
Consumer credit card						939		—		939
Other consumer						1,169		—		1,169

Total consumer					$	29,922	$	377	$	30,299

									$	76,720


	December 31, 2011
	Pass		Special Mention		Substandard Accrual		Non-accrual		Total
	(In millions)
Commercial and industrial	$	22,952	$	479	$	634	$	457	$	24,522
Commercial real estate mortgage—owner occupied		9,773		262		541		590		11,166
Commercial real estate construction—owner occupied		275		27		10		25		337

Total commercial	$	33,000	$	768	$	1,185	$	1,072	$	36,025


Commercial investor real estate mortgage		6,851		756		1,361		734		9,702
Commercial investor real estate construction		531		113		201		180		1,025

Total investor real estate	$	7,382	$	869	$	1,562	$	914	$	10,727


					Accrual		Non-accrual		Total
					(In millions)
Residential first mortgage					$	13,534	$	250	$	13,784
Home equity						12,885		136		13,021
Indirect						1,848		—		1,848
Consumer credit card						987		—		987
Other consumer						1,202		—		1,202

Total consumer					$	30,456	$	386	$	30,842

									$	77,594

AGING ANALYSIS

The following tables include an aging analysis of days past due (DPD) for each portfolio class as of March 31, 2012 and December 31, 2011:


	March 31, 2012
	Accrual Loans
	30-59 DPD		60-89 DPD		90+ DPD		Total 30+ DPD		Total Accrual		Non-accrual		Total
	(In millions)
Commercial and industrial	$	25	$	18	$	9	$	52	$	24,659	$	439	$	25,098
Commercial real estate mortgage—owner occupied		40		28		9		77		10,386		545		10,931
Commercial real estate construction—owner occupied		1		—		—		1		258		23		281

Total commercial		66		46		18		130		35,303		1,007		36,310

Commercial investor real estate mortgage		69		53		2		124		8,516		640		9,156
Commercial investor real estate construction		1		2		—		3		828		127		955

Total investor real estate		70		55		2		127		9,344		767		10,111

Residential first mortgage		158		100		300		558		13,370		241		13,611
Home equity		96		62		87		245		12,506		136		12,642
Indirect		19		6		2		27		1,938		—		1,938
Consumer credit card		7		5		14		26		939		—		939
Other consumer		14		4		4		22		1,169		—		1,169

Total consumer		294		177		407		878		29,922		377		30,299

	$	430	$	278	$	427	$	1,135	$	74,569	$	2,151	$	76,720


	December 31, 2011
	Accrual Loans
	30-59 DPD		60-89 DPD		90+ DPD		Total 30+ DPD		Total Accrual		Non-accrual		Total
	(In millions)
Commercial and industrial	$	38	$	23	$	28	$	89	$	24,065	$	457	$	24,522
Commercial real estate mortgage—owner occupied		47		23		9		79		10,576		590		11,166
Commercial real estate construction—owner occupied		3		1		—		4		312		25		337

Total commercial		88		47		37		172		34,953		1,072		36,025

Commercial investor real estate mortgage		34		42		13		89		8,968		734		9,702
Commercial investor real estate construction		23		5		—		28		845		180		1,025

Total investor real estate		57		47		13		117		9,813		914		10,727

Residential first mortgage		187		100		284		571		13,534		250		13,784
Home equity		121		77		93		291		12,885		136		13,021
Indirect		26		7		2		35		1,848		—		1,848
Consumer credit card		8		5		14		27		987		—		987
Other consumer		20		6		4		30		1,202		—		1,202

Total consumer		362		195		397		954		30,456		386		30,842

	$	507	$	289	$	447	$	1,243	$	75,222	$	2,372	$	77,594

IMPAIRED LOANS

The following tables present details related to the Company’s impaired loans as of March 31, 2012 and December 31, 2011. Loans deemed to be impaired include non-accrual commercial and investor real estate loans, excluding leases, and all TDRs (including accruing commercial, investor real estate, and consumer TDRs). Loans which have been fully charged-off do not appear in the tables below.


	Non-accrual Impaired Loans As of March 31, 2012
					Book Value (3)
	Unpaid Principal Balance (1)		Charge-offs and Payments Applied (2)		Total Impaired Loans on Non-accrual Status		Impaired Loans on Non-accrual Status with No Related Allowance		Impaired Loans on Non-accrual Status with Related Allowance		Related Allowance for Loan Losses		Coverage % (4)
							(Dollars in millions)
Commercial and industrial	$	516	$	89	$	427	$	104	$	323	$	130		42.4	%
Commercial real estate mortgage—owner occupied		632		88		544		37		507		187		43.5
Commercial real estate construction—owner occupied		35		12		23		1		22		10		62.9

Total commercial		1,183		189		994		142		852		327		43.6

Commercial investor real estate mortgage		774		134		640		59		581		201		43.3
Commercial investor real estate construction		172		46		126		9		117		44		52.3

Total investor real estate		946		180		766		68		698		245		44.9

Residential first mortgage		149		52		97		—		97		15		45.0
Home equity		29		10		19		—		19		2		41.4

Total consumer		178		62		116		—		116		17		44.4

Total	$	2,307	$	431	$	1,876	$	210	$	1,666	$	589		44.2	%


	Accruing Impaired Loans As of March 31, 2012
	Unpaid Principal Balance (1)		Charge-offs and Payments Applied (2)		Book Value		Related Allowance for Loan Losses		Coverage % (4)
	(Dollars in millions)
Commercial and industrial	$	268	$	2	$	266	$	56		21.6	%
Commercial real estate mortgage—owner occupied		223		2		221		34		16.1
Commercial real estate construction—owner occupied		4		—		4		1		25.0

Total commercial		495		4		491		91		19.2

Commercial investor real estate mortgage		930		6		924		186		20.6
Commercial investor real estate construction		133		—		133		79		59.4

Total investor real estate		1,063		6		1,057		265		25.5

Residential first mortgage		1,054		13		1,041		146		15.1
Home equity		429		4		425		42		10.7
Indirect		2		—		2		—		—
Other consumer		51		—		51		1		2.0

Total consumer		1,536		17		1,519		189		13.4

Total	$	3,094	$	27	$	3,067	$	545		18.5	%


	Total Impaired Loans As of March 31, 2012															Three Months Ended March 31, 2012
					Book Value (3)
	Unpaid Principal Balance (1)		Charge-offs and Payments Applied (2)		Total Impaired Loans		Impaired Loans with No Related Allowance		Impaired Loans with Related Allowance		Related Allowance for Loan Losses		Coverage % (4)			Average Balance		Interest Income Recognized (5)
									(Dollars in millions)
Commercial and industrial	$	784	$	91	$	693	$	104	$	589	$	186		35.3	%	$	730	$	4
Commercial real estate mortgage—owner occupied		855		90		765		37		728		221		36.4			785		3
Commercial real estate construction—owner occupied		39		12		27		1		26		11		59.0			28		—

Total commercial		1,678		193		1,485		142		1,343		418		36.4			1,543		7

Commercial investor real estate mortgage		1,704		140		1,564		59		1,505		387		30.9			1,636		10
Commercial investor real estate construction		305		46		259		9		250		123		55.4			294		2

T

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Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents